Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order Granting Approval of Proposed Rule Change Relating to Obvious Errors Respecting Complex Trades, 2940-2941 [2011-891]

Download as PDF 2940 Federal Register / Vol. 76, No. 11 / Tuesday, January 18, 2011 / Notices not impose any significant burden on competition, and (3) does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate. The Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing, or such shorter time as designated by the Commission.8 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2011–001 and should be submitted on or before February 8, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–892 Filed 1–14–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION mstockstill on DSKH9S0YB1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BX–2011–001 on the subject line. [Release No. 34–63692; File No. SR–Phlx– 2010–163] Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BX–2011–001. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the On November 17, 2010, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Rule 1092, Obvious Errors and Catastrophic Errors, to address obvious and catastrophic errors involving complex orders. The proposed rule change was published for comment in the Federal Register on December 1, 2010.3 The Commission received no comment letters on the proposal. This order approves the proposed rule change. The proposed rule change would amend Rule 1092, Obvious Errors and Catastrophic Errors, to address obvious and catastrophic errors involving trades of one complex order against another complex order. Specifically, the 8 17 CFR 240.19b–4(f)(6). VerDate Mar<15>2010 16:24 Jan 14, 2011 Jkt 223001 Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order Granting Approval of Proposed Rule Change Relating to Obvious Errors Respecting Complex Trades January 11, 2011. 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 63367 (November 23, 2010), 75 FR 74755 (‘‘Notice’’). 1 15 PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 proposal is designed to address a situation in which one component (or leg) of a complex order is deemed an obvious (or catastrophic) error, but the other component(s) are not. In such situation, the proposed rule change would permit all legs of a complex order execution to be nullified when one leg of such complex order can be nullified as an obvious or catastrophic error under Rule 1092,4 provided that the execution involved a complex order executing against another complex order (such that all of the same parties are involved in the trade).5 The proposed rule does not address complex orders that do not trade against other complex orders. In addition, the proposal would make three minor corrections: (i) A reference in Rule 1092(b)(ii) to Rule 1014(c)(1)(A)(i)(a) is inverted and should instead say Rule 1014(c)(i)(A)(1)(a); (ii) the words ‘‘obvious error’’ in Rule 1092(e)(i)(B) are being capitalized to match the rest of the rule; and (iii) a reference to ‘‘AUTOM’’ in Rule 1092(e)(ii) is outdated and will be deleted, leaving reference to the ‘‘Help Desk.’’ The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 6 and, in particular, the 4 Rule 1092 provides a framework for reviewing the price of a transaction to determine whether that price was an ‘‘obvious error’’ pursuant to objective standards. When a participant believes he/she received one or more executions at an erroneous price, a participant may notify the Options Exchange Officials (‘‘OEOs’’) and request the review of a trade as a possible obvious error. An obvious error will be deemed to have occurred when the execution price of a transaction is higher or lower than the theoretical price for a series by a certain amount depending on the type of option. OEOs use one of three criteria when determining the theoretical price of an options execution, which are enumerated in Rule 1092(b). The theoretical price is then compared to an obvious/catastrophic error chart within Rule 1092(a). If the transaction price meets this threshold, the transaction may be adjusted or nullified. 5 See proposed Rule 1092(c)(v)(A). This would occur when a complex order executes against another complex order, with each piece executing through the System against each other. The Notice provides the following example of such a trade. Assume a customer trades a call spread at a net price of $0.50 by buying the January 50 calls at $3.00 and selling the January 55 calls at $2.50. If the January 50 calls should have been trading at $7.00 and thus met the obvious error threshold in Rule 1092, then the entire complex trade would be nullified only if the January 50 and 55 calls traded as a complex order against another complex order, rather than as two separate trades. Currently, the trade involving the January 50 calls is nullified and the January 55 Calls trade would stand, which, according to the Exchange, likely was not intended by either party. 6 In approving this proposed rule change, the Commission has considered the proposed rule’s E:\FR\FM\18JAN1.SGM 18JAN1 Federal Register / Vol. 76, No. 11 / Tuesday, January 18, 2011 / Notices requirements of Section 6(b) of the Act 7 and the rules and regulations thereunder. Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,8 in that the proposal is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that, in approving proposals relating to adjustment or nullification of trades involving obvious errors, it has stated that the determination of whether an obvious error has occurred and the process for reviewing such a determination should be based on specific and objective criteria and subject to specific and objective procedures.9 The Commission notes that the proposed change to Rule 1092 provides specific and objective procedures for determining whether a trade should be nullified. The purpose of the new provision is to provide that obvious and catastrophic errors related to complex orders that trade against other complex orders will be nullified. The Commission also notes that the proposed rule change, by providing that obvious and catastrophic errors related to complex orders that trade against other complex orders will be nullified, is designed to mitigate the risk to both parties to a complex order trade involving two complex orders, neither or whom, according to the Exchange, intended to end up with just one piece of the complex order.10 Therefore, the Commission believes that the proposed rule change is consistent with the Act. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the proposed rule change (SR–Phlx–2010– 163) is hereby approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–891 Filed 1–14–11; 8:45 am] mstockstill on DSKH9S0YB1PROD with NOTICES BILLING CODE 8011–01–P impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). 9 See, e.g., Securities Exchange Release Nos. 58778 (October 14, 2008), 73 FR 62577 (October 21, 2008) and 54228 (July 27, 2006), 71 FR 44066 (August 3, 2006) (SR–CBOE–2006–14) (approving revisions to CBOE’s Obvious Error Rules). 10 See Notice, supra note 3. 11 15 U.S.C. 78s(b)(2). 12 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 16:24 Jan 14, 2011 Jkt 223001 Matthew Rooney, Principal Deputy Assistant Secretary, Legislative Affairs. DEPARTMENT OF STATE [Public Notice: 7301] Bureau of Political-Military Affairs: Directorate of Defense Trade Controls; Notifications to the Congress of Proposed Commercial Export Licenses Notice is hereby given that the Department of State has forwarded the attached Notifications of Proposed Export Licenses to the Congress on the dates indicated on the attachments pursuant to sections 36(c) and 36(d) and in compliance with section 36(f) of the Arms Export Control Act (22 U.S.C. 2776). SUMMARY: Effective Date: As shown on each of the 14 letters. FOR FURTHER INFORMATION CONTACT: Mr. Robert S. Kovac, Managing Director, Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State (202) 663–2861. SUPPLEMENTARY INFORMATION: Section 36(f) of the Arms Export Control Act mandates that notifications to the Congress pursuant to sections 36(c) and 36(d) must be published in the Federal Register when they are transmitted to Congress or as soon thereafter as practicable. DATES: December 1, 2010 (Transmittal No. DDTC 10–103) Hon. Nancy Pelosi, Speaker of the House of Representatives. Dear Madam Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed technical assistance agreement to include the export of defense articles, to include technical data, and defense services in the amount of $100,000,000 or more. The transaction contained in the attached certification involves the transfer of defense articles, to include technical data, and defense services to support the design, manufacture and delivery of the Anik G1 Commercial Communication Satellite to Canada. The United States Government is prepared to license the export of these items having taken into account political, military, economic, human rights, and arms control considerations. More detailed information is contained in the formal certification which, though unclassified, contains business information submitted to the Department of State by the applicant, publication of which could cause competitive harm to the United States firm concerned. Sincerely, PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 2941 November 19, 2010 (Transmittal No. DDTC 10–104) Hon. Nancy Pelosi, Speaker of the House of Representatives. Dear Madam Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed manufacturing license agreement to include the export of defense articles, to include technical data, and defense services in the amount of $50,000,000 or more. The transaction contained in the attached certification involves the export of defense articles, including technical data, and defense services to Saudi Arabia for the operation and maintenance of the Saudi Ministry of Defense and Aviation, and the Royal Saudi Air Defense Forces HAWK and PATRIOT Air Defense Missile Systems. The United States Government is prepared to license the export of these items having taken into account political, military, economic, human rights, and arms control considerations. More detailed information is contained in the formal certification which, though unclassified, contains business information submitted to the Department of State by the applicant, publication of which could cause competitive harm to the United States firm concerned. Sincerely, Richard R. Verma, Deputy Assistant Secretary, Legislative Affairs. December 6, 2010 (Transmittal No. DDTC 10–105) Hon. Nancy Pelosi, Speaker of the House of Representatives. Dear Madam Speaker: Pursuant to Section 36(c) of the Arms Export Control Act, I am transmitting, herewith, certification of a proposed amendment to a Technical Assistance Agreement for the export of defense articles, to include technical data, and defense services in the amount of $100,000,000 or more. The transaction contained in the attached certification involves the export of defense articles, including technical data, and defense services for the development, production and test of the APS–508 Radar System for the CP– 140 Aircraft Program. The United States Government is prepared to license the export of these items having taken into account E:\FR\FM\18JAN1.SGM 18JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 11 (Tuesday, January 18, 2011)]
[Notices]
[Pages 2940-2941]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-891]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63692; File No. SR-Phlx-2010-163]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Granting Approval of Proposed Rule Change Relating to Obvious Errors 
Respecting Complex Trades

January 11, 2011.
    On November 17, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Rule 1092, Obvious Errors and 
Catastrophic Errors, to address obvious and catastrophic errors 
involving complex orders. The proposed rule change was published for 
comment in the Federal Register on December 1, 2010.\3\ The Commission 
received no comment letters on the proposal. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 63367 (November 23, 
2010), 75 FR 74755 (``Notice'').
---------------------------------------------------------------------------

    The proposed rule change would amend Rule 1092, Obvious Errors and 
Catastrophic Errors, to address obvious and catastrophic errors 
involving trades of one complex order against another complex order. 
Specifically, the proposal is designed to address a situation in which 
one component (or leg) of a complex order is deemed an obvious (or 
catastrophic) error, but the other component(s) are not. In such 
situation, the proposed rule change would permit all legs of a complex 
order execution to be nullified when one leg of such complex order can 
be nullified as an obvious or catastrophic error under Rule 1092,\4\ 
provided that the execution involved a complex order executing against 
another complex order (such that all of the same parties are involved 
in the trade).\5\ The proposed rule does not address complex orders 
that do not trade against other complex orders.
---------------------------------------------------------------------------

    \4\ Rule 1092 provides a framework for reviewing the price of a 
transaction to determine whether that price was an ``obvious error'' 
pursuant to objective standards. When a participant believes he/she 
received one or more executions at an erroneous price, a participant 
may notify the Options Exchange Officials (``OEOs'') and request the 
review of a trade as a possible obvious error. An obvious error will 
be deemed to have occurred when the execution price of a transaction 
is higher or lower than the theoretical price for a series by a 
certain amount depending on the type of option. OEOs use one of 
three criteria when determining the theoretical price of an options 
execution, which are enumerated in Rule 1092(b). The theoretical 
price is then compared to an obvious/catastrophic error chart within 
Rule 1092(a). If the transaction price meets this threshold, the 
transaction may be adjusted or nullified.
    \5\ See proposed Rule 1092(c)(v)(A). This would occur when a 
complex order executes against another complex order, with each 
piece executing through the System against each other. The Notice 
provides the following example of such a trade. Assume a customer 
trades a call spread at a net price of $0.50 by buying the January 
50 calls at $3.00 and selling the January 55 calls at $2.50. If the 
January 50 calls should have been trading at $7.00 and thus met the 
obvious error threshold in Rule 1092, then the entire complex trade 
would be nullified only if the January 50 and 55 calls traded as a 
complex order against another complex order, rather than as two 
separate trades. Currently, the trade involving the January 50 calls 
is nullified and the January 55 Calls trade would stand, which, 
according to the Exchange, likely was not intended by either party.
---------------------------------------------------------------------------

    In addition, the proposal would make three minor corrections: (i) A 
reference in Rule 1092(b)(ii) to Rule 1014(c)(1)(A)(i)(a) is inverted 
and should instead say Rule 1014(c)(i)(A)(1)(a); (ii) the words 
``obvious error'' in Rule 1092(e)(i)(B) are being capitalized to match 
the rest of the rule; and (iii) a reference to ``AUTOM'' in Rule 
1092(e)(ii) is outdated and will be deleted, leaving reference to the 
``Help Desk.''
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange \6\ and, in 
particular, the

[[Page 2941]]

requirements of Section 6(b) of the Act \7\ and the rules and 
regulations thereunder. Specifically, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\8\ in that the 
proposal is designed to promote just and equitable principles of trade, 
to prevent fraudulent and manipulative acts, to remove impediments to 
and to perfect the mechanism for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that, in approving proposals relating to 
adjustment or nullification of trades involving obvious errors, it has 
stated that the determination of whether an obvious error has occurred 
and the process for reviewing such a determination should be based on 
specific and objective criteria and subject to specific and objective 
procedures.\9\ The Commission notes that the proposed change to Rule 
1092 provides specific and objective procedures for determining whether 
a trade should be nullified. The purpose of the new provision is to 
provide that obvious and catastrophic errors related to complex orders 
that trade against other complex orders will be nullified. The 
Commission also notes that the proposed rule change, by providing that 
obvious and catastrophic errors related to complex orders that trade 
against other complex orders will be nullified, is designed to mitigate 
the risk to both parties to a complex order trade involving two complex 
orders, neither or whom, according to the Exchange, intended to end up 
with just one piece of the complex order.\10\ Therefore, the Commission 
believes that the proposed rule change is consistent with the Act.
---------------------------------------------------------------------------

    \9\ See, e.g., Securities Exchange Release Nos. 58778 (October 
14, 2008), 73 FR 62577 (October 21, 2008) and 54228 (July 27, 2006), 
71 FR 44066 (August 3, 2006) (SR-CBOE-2006-14) (approving revisions 
to CBOE's Obvious Error Rules).
    \10\ See Notice, supra note 3.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Phlx-2010-163) is hereby 
approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-891 Filed 1-14-11; 8:45 am]
BILLING CODE 8011-01-P

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